High Performance More Marathon Than Sprint

Lessons in creating a high-performance culture in ethanol companies.
By Scott McDermott | April 08, 2015

Senior management changes at ethanol companies come about for many reasons. Sometimes it is a retirement situation or natural attrition and other times it can be a separation due to differences in management philosophy or style. Ascendant Partners has observed, and sometimes assisted in, senior management transition at several ethanol companies. These transitions have provided some very good lessons about how to create a high-performance culture coming from the talented people who have become the new managers.

Leadership is an often-used buzz word, but it is acknowledged as the single, critical success factor for creating a high-performance culture in ethanol companies. Managers leading a transition must step up with a plan about where they want the organization to go, lay the tracks to get there and almost always do it in the face of resistance at every juncture. A change in culture does not happen without some combination of conviction, force and finesse.

Often, the biggest hindrance to culture change is a single disruptive employee. We have observed that companies sometimes go to great lengths to adjust the whole organization around one problem employee, often at the burden of productive employees. Other times, it is not a problem employee as much as a good employee in the wrong role. Good managers have a talent for knowing the difference between a bad company fit and a good person in the wrong role.

A good change leader has the ability to get the right people in the right roles and, when required, make the tough decisions. For example, one company had an incredibly talented engineer who was also a manager. The company, however, was more focused on head count than effectiveness. The general manager eventually replaced the talented engineer with a good manager. The company lost a talented individual, but gained a functioning organization. The best managers understand they are impacting people’s lives with their business decisions and agonize at great length before making staff changes.

Engaged Board
Board support is another feature that affects new senior management’s ability to change the culture of the ethanol company. Most boards understand it is their job to hire the general manager or CEO. Effective boards also understand they need both to empower the new leadership to manage the business and hold the new management accountable for results. Good senior managers engage the board in aligning the strategic direction for the company so all understand where the board wants to go and plans can be put in place to drive the business forward. There have been instances where high-performance managers with a good track record of business success have failed to transition the business. One of the biggest drivers of a failed transition to a performance culture is when the manager is undermined by divisions amongst the board or alternative agendas at the board level.

Superior financial and operational information is another common element leveraged by high performance managers in the ethanol industry. Many companies that struggle lack sufficient information to make informed business decisions. When a company lacks quality information, there is no way to discern fact from opinion, which is very frustrating to all. The old adage, “If you can’t measure it then you can’t manage it,” is a critical driver for getting buy-in and empowering staff to make better business decisions. High-performing managers use data and analysis to undo the business myths holding the organization back and empower the high performers to excel.

In one case, an ethanol company had a long history of not using data to make business decisions. Relatively little information was available and management did not value using data and information to manage the business. Everything was run on gut feel. It worked in the early years, but over time the company fell well short of its business potential. Eventually, the ethanol company was so disadvantaged the board had to replace management to try to save the company. The new manager immediately put robust information management systems in place for accounting and manufacturing, but in the end, it did not get the business back on track. However, the information helped the board and management team realize they could not improve the business enough to make it competitive again. Instead, they pursued innovative technology to provide a competitive advantage. The gamble paid off and the information systems they developed helped guide them to prove out the technical innovation, which saved the company.

Positive Reinforcement
Company performance measures also set the stage for positive reinforcement for high-performance staff, which in return reinforces the culture change. Once the new manager has a financial and operational baseline for business performance, the information helps with identifying and supporting good decisions, as well as correcting bad decisions. The staff who seek high performance use the information for improvement because they want to excel and increase compensation. We have observed that high-performance employees are a catalyst for increased company pride. This is reinforced by managers who look for ways to celebrate success as the business improves. Good people generally want to contribute and be a part of a company that they can be proud of.

You can’t talk about employee performance in an organization and not discuss the role of the compensation program as a catalyst for change. Managers who are driving culture change in the organization can’t use high-level profitability or subjective compensation programs to incent behavior. They have to utilize programs that allow staff to see the tangible performance measures that they will be held accountable for and then follow through on rewarding employees who meet or exceed the performance objectives.

Compensation and incentive programs that are subjective or focus strictly on how well the company does financially can be too simplistic. In the ethanol industry, market prices are such a material part of profitability, and mostly out of the staff’s control. The high-performance manager understands that financial performance is a combination of market margins (corn, ethanol and coproduct prices), operational performance, operational and cost improvements, as well as steps being taken to position the business for future success. High-performance managers seek compensation programs that find ways to tie staff performance compensation to all of these areas.

Another observation is centered on the actual process of the high-performance culture change which has nothing to do with the manager’s style or effort and everything to do with human nature. I call it the perpetual motion pendulum. The transition to a high-performance culture is not typically a smooth path. It has fits and starts. The resistance to change has some staying power until the positive momentum is strong enough to shift attitudes. The positive momentum is the perpetual motion and the shift in attitudes swings the pendulum to the other side. When it finally happens, it almost feels like an overnight change in the attitudes from resistance to acceptance.

Finally, these high-performance managers seem to have a trait I admire most—patience. All of these managers have patience, usually gained from experience. Occasionally, an exceptional young leader is both smart and patient, but this is a rare trait. Most of the high-performing change managers have come to their wisdom via the battles and war wounds of their experiences in fostering new business cultures. This is not to say they don’t push the organization to change. It only means they understand culture change in an ethanol company to a high-performance business model is a marathon and not a sprint. They seem to find balance between the constant pressure to improve and the wisdom to do it at a pace that brings everybody along in the journey.

A special thanks to the men and women leaders who inspired this piece.

Author: Scott McDermott
Partner, Ascendant Partners Inc.